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Federal Workers' Insurance Premiums to Rise Less Than Others'

By Robert Pear, The New York Times

September 16, 2003

Health insurance premiums for federal workers and retirees will rise next year by an average of 10.6 percent, which is much less than the increases planned by many private employers, the Bush administration said today.

Administration officials said the new rates suggested that the federal employee program was a model for the private sector and for Medicare, the insurance program for people who are elderly or disabled.

The program for federal employees offers a wide variety of insurance options through scores of competing private health plans.

The people who run the Federal Employees Health Benefits Program try to obtain lower rates and additional benefits through negotiation and persuasion, with a minimum of mandates and regulation.

Kay Coles James, director of the federal Office of Personnel Management, said the premiums for federal workers and retirees would average $277 every two weeks, or $7,202 a year, in 2004. The government pays slightly more than 70 percent of this amount, on the average.

Premiums for health maintenance organizations will increase an average of 9.9 percent next year, while federal workers in fee-for-service plans will see an average increase of 10.7 percent, the government said.

The companies that insure federal employees are usually responsive to suggestions from the government because the federal employee program is one of the largest employer-sponsored health benefit programs in the United States.

The program provides health insurance for 8.3 million people — 2.2 million active workers, more than 1.8 million retirees and 4.2 million dependents — at a cost of $26 billion a year. It is available in big cities and rural areas, to White House officials and park rangers alike.

In the private sector, health insurance premiums rose 13.9 percent this year, and many employers expect larger increases next year.

Mrs. James said the lower increase for federal workers was "a product of tough negotiations."

Robert E. Moffit, director of health policy studies at the conservative Heritage Foundation, said, "The new rates for federal employees show you can have a program that delivers high-quality health care and restrains costs without price controls or thousands of pages of regulations."

Abby L. Block, deputy associate director of the federal personnel agency, said the government had held premium increases below the national norm without making any significant reductions in benefits. Many private employers have trimmed benefits.

Edward Kaplan, senior vice president of the Segal Company, a benefit consulting concern, said the increase in premiums for federal workers would be "significantly lower than the increases for most private employers, which are expected to average 14.5 percent next year."

"The government has a bigger group of employees, so it has more leverage over insurers and H.M.O's," Mr. Kaplan said. "With a big group, the cost of employee health benefits is more predictable."

For the first time in five years, the number of health plans participating in the federal employee program will rise next year, to 205, from 188 this year.

Eleven fee-for-service health plans will be available to all federal employees, and many federal workers will be able to enroll in local H.M.O.'s.

"In sharp contrast to trends in the private sector," Mrs. James said, "the federal employee health plans continue to cover all eligible retirees and their spouses."

About 4.3 million federal employees and retirees are in Blue Cross and Blue Shield plans. For the most popular plan, the Blue Cross "standard option," premiums will rise 9.9 percent next year, the company said.

Prescription drugs account for $6 billion of the $26 billion cost of the federal employee program, and this figure is rising 12 percent a year, federal officials said. By contrast, many private plans say their drug costs are increasing more than 15 percent a year.